Photographer: Scott Eells/Bloomberg

Wall Street Wants Just a Little More Debt Volatility

Across Wall Street, there seems to be little dispute that traders in U.S. debt markets need more volatility -- although maybe not too much.

Dealers have been wishing for a bit more tumult in assets from corporate obligations to Treasuries since the Federal Reserve quashed volatility by buying up bonds in the wake of the financial crisis.

The sweet-spot -- swings just turbulent enough to stoke trading activity, but not too violent -- may prove elusive. With 10-year Treasury yields at the highest levels since 2014, one measure of bond-market volatility is already perking up from a record low.

“If we had more volatility, it would create more opportunities for clients and certainly create more opportunities for the traders on our desk,” Brian Archer, head of global credit trading at Citigroup Inc., said on a panel this week at a Tabb Group LLC conference in New York. “If central banks around the globe start to ease what they were doing the last couple of years, perhaps that will lead to some volatility.”

Goldman Sachs Group Inc. is among firms predicting the Fed will hike rates more than policy makers have signaled, meaning a more aggressive path than the market is priced for. That has some market watchers, including hedge-fund manager Ray Dalio, warning investors to brace for the worst.

The hope is for volatility “within reason,” said Bob Michele, who oversees about $483 billion as head of global fixed income, currency and commodities at JPMorgan Asset Management.

“We have to be careful what we ask for,” he said on the same panel as Archer. The key is “moderate volatility.”

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